Gold Price Forecast: Oversold but selling not over yet, $1,722 still in sight

Gold Price rebounds, as bears bide time before next push lower.
Risk flows temporarily down the US dollar while recession fears lurk.
XAUUSD still targets rising channel target at $1,722 despite oversold RSI.

Dhwani Mehta FXStreet

The FOMC June meeting’s minutes published read hawkish and put a fresh bid under the US dollar in American trading on Wednesday. The Fed minutes revealed that the board members remained worried over inflation becoming more entrenched, and therefore, “warranted moving to a restrictive stance of policy, and they recognized the possibility that an even more restrictive stance could be appropriate if elevated inflation pressures were to persist.” Amidst unrelenting buying interest around the dollar, Gold Price was smashed to a nine-month low of $1,732. The greenback was already a preferred safe-haven asset, as recession fears amplified but the hawkish Fed minutes bolstered its demand. The impressive rebound in the US Treasury yields also exacerbated the pain in the bright metal, as the minor upturn in Wall Street indices failed to impress XAU bulls. In the aftermath of the Fed minutes, the CME FedWatch Tool showed that markets price in a 94% chance of a 75 bps rate hike in July vs. 84% expected on July 5.

Gold Price is attempting a minor recovery towards $1,750, as the improvement in risk sentiment has fuelled a decent pullback in the dollar across its main peers. The recent strength in the US rates warrants caution for bulls, as they firm up ahead of Friday's labor market report. Risk flows returned, as markets stabilize after two days of intense volatility amid rife recession fears, surging gas prices and political instability in the UK. Investors reassess recession risks amid signs of peak inflation ahead of the critical US employment data. The US ADP jobs data is suspended to be released all through the Summer, as the company implements a new methodology. Hence, speeches from Fed and BOE officials will be closely followed.

Gold Price Chart: Daily

On the daily chart, gold price remains on track to challenge the rising channel target aligned at $1,722, as the latest bounce is only seen as temporary.

The renewed upside in the metal could be attributed to the oversold conditions on the 14-day Relative Strength Index (RSI), which is currently at 28.40.

The ongoing road to recovery could be immediately capped by the $1,750 psychological level, above which a fresh upswing towards the powerful hurdle around $1,775 cannot be ruled. That level is the confluence of the January 28 low and the previous day’s high.

If sellers regain control, then the $1,700 mark will be at risk on a sustained move below the abovementioned crucial support at $1,722.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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